Freddie Mac Sues More Than a Dozen Banks Over LIBOR Manipulation

Freddie Mac filed a suit against Bank of America Corp (NYSE:BAC), UBS AG (NYSE:UBS), JPMorgan Chase & Co. (NYSE:JPM) and many other banks, alleging that the financial institutions manipulated the London Interbank offered rate (LIBOR). Freddie Mac said the reason behind this legal action was because the mortgage financier underwent substantial losses as a result of the companies’ conduct.

Freddie Mac, a government owned institution, has put forward the allegation that these banks worked together to control the U.S. dollar LIBOR to “hide” their institutions’ financial issues and to increase their profit.

There have been many agencies probing the Libor rate rigging scandal that has involved some of the world’s biggest banks in three continents. The case has become the banking Industry’s biggest and longest running scandal ever. More than $300 trillion of loans, mortgages, financial products and contracts, are linked to Libor.

There are 15 banks as defendants against whom the complaint has been lodged along with the British Banker’s association. They include Citigroup Inc. (NYSE:C), Barclays PLC (NYSE:BCS) (LON:BARC), Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS), the Royal Bank of Canada (NYSE:RY) (TSE:RY), Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) and Credit Suisse Group AG (NYSE:CS).

Big banks like Barclays PLC (NYSE:BCS) (LON:BARC), UBS AG (NYSE:UBS) and Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS), have already payed fines of more than $2.5 billion to settle the global investigation in the Libor manipulation. Traders fixed the standard to profit from bets on derivatives. According to regulators, banks submitted the artificial low rates in order to project themselves as more financially sound than they actually were.

The calculation of Libor is done by the daily poll carried out by Thomson Reuters Corp on behalf of British Banker’s Association, which is an industry lobby group that asks firms to approximate how much it would cost to borrow from each other for different periods and in different currencies.

Libor is used by Freddie Mac and Fannie Mae to arrive at the interest payments on their investments in floating rate financial instruments including bonds and swaps.

The complaint filed by Freddie Mac reads, From August 2007, and through at least May 2010, the defendants “formed, a combination, conspiracy, or agreement,” to submit false Libor rates. The case is Federal Home Loan Mortgage Corp. v. Bank of America Corp (NYSE:BAC), 13-cv-00342, U.S. District Court, Eastern District of Virginia (Alexandria).

Federal Home Loan Mortgage Corp (OTC:FMCC) (the official name for Freddie Mac) alleged the involved banks for fraud, violations of antitrust law and breach of contract. The housing financier is asking for unspecified damages caused by rate rigging and is also seeking punitive damages and treble damages for violations of the Sherman Act. According to an auditor of the FHFA, Freddie Mac and its sister company, Washington-based Fannie Mae could have lost about $3 billion because of Libor manipulation.